Stocks continued to rebound from its March low as statistics showed slowing in infection rate and fatality rate of coronavirus pandemic. News articles started to discuss ways of reopening the economy. Discussion about another fiscal stimulus package in White house and congress also boosted investors sentiment, and on Thursday, Federal Reserve announced a $2.3 Trillion program for loans to smaller businesses to boost economy. For the week, S&P 500 index went up 12.1% to 2789, Dow Jones Industrial Average gained 12.7% , and the technology laden NASDAQ composite index increased 10.6%.
In the blog last week, I mentioned that S&P 500 index has completed its first leg down and is making a counter trend rally. To see where this bear market rally is heading, I applied the Fibonacci retracement lines on the first leg of the selloff. The index fell from its high of 3393 to the low of 2191 in this severe plunge. The 38% recovery level is at 2650 which was the resistance in the previous 2 weeks, while the 50 % retracement level at 2795 has just been reached this week. Usually after sharp plunges, the index would recover 50% of the loss or 61.8% at the best. If the rebound is strong, the next level to reach will be the 61.8 % retracement level at 2935. For investors who are thinking to lighten their holdings, these two levels are good opportunities to reduce their risk exposure. One of the trading rules used by market technician is buy at the support in the bull market and sell at resistance in the bear market. In the blog last week, I also talked about the second leg down after completion of this counter trend rally. However, the completion of the counter trend rally can only be told in hindsight. As market volatility remains elevated, the index can go either way very quickly. We will continue to monitor the stock movement and analyze it accordingly.
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| Weekly chart of S&P 500 index |
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